Ukraine - Overview
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The Ukrainian economy is going through a difficult period, while the Ukranian government faces a popular protest movement. In 2013, the macroeconomic imbalances of the country became unsustainable. As an effect of a the fixed and overvalued exchange rate (until very recently), the deficit of the current account deepened to more than 9% of the GDP and due to lack of competitiveness, exports and GDP stagnated. The international reserves fell to a very low level due to the high external payments and limited access to international bond markets. The budget deficit of 2013 reached 4.5% of the GDP and the state accumulated significant arrears. The protest movements which were sparked off in 2013 by Ukraine's decision to not sign the Association Agreement with the European Union, left 80 people dead and resulted in the deposition of president Viktor Janukovych. The political and social situation is very unstable and there is a risk of its instability becoming permanent. Russia's decision to deploy troops in Crimea has increased the risk over the country's territorial integrity. Ukraine has signed a preliminary agreement with the IMF, which should release 27 billion USD of international aid to avoid the state defaulting on payments nad limit the economic damage left by the political crisis, which has now been going on for four months. Of this amount, the IMF aid will represent between 14 and 18 billion USD.
Ukraine has finally signed the Association Agreement with the EU on June 27, 2014, which aims in particular to remove the trade barriers between the country and the European Union members.
The economic crisis had a deep social impact in Ukraine. Wages fell and unemployment rose sharply (8%). For more information, you can refer to the Ukraine Economy Watch website.
The secondary sector employs 24% of the population and represents more than 30% of the GDP. The Ukrainian manufacturing sector, greatly hit by the global economic crisis of 2008-9, is dominated by heavy industries such as iron (Ukraine is the 6th biggest producer of iron in the world), and steel. These two sectors alone account for 30% of the industrial production. Coal mining, chemical and mechanical products (airplanes, turbines, locomotives and tractors) and ship building are also important sectors.
The service sector employs over 60% of the workforce and contributes up to 59% of the GDP. Ukraine is an energy transit country, providing transportation to western Europe and the Balkans, for Russian and Caspian oil and gas through its territory.
Foreign trade overview
Ukraine's three main suppliers are: Russia, the Commonwealth of Independent States (CIS), Germany, Italy, China, Poland, Turkmenistan and Turkey. Russia is a major supplier of oil and gas, almost a third of Ukrainian total imports. Ukraine mainly imports fuels and oil, machinery, vehicles, electric and electronic equipment and plastics.
Its main customers are Russia and the CIS (25%), Turkey and Europe. Main export goods are iron and steel, fuels and oil, nuclear reactors and boilers, machinery and machine tools (nearly 30% of exports), and cereals.
The failure of establishing a closer relationship with Brussels and the uncertainty regarding the government's unwillingness to comply with the IMF's demands have both negatively affected investor confidence.
Apart from the economic downturn, the inefficient and corrupted legal system, complexity of legislation and regulation, poor contract enforcement and poor governance constitute serious impediments to investment. This is so despite the fact that the country has its strengths: a large domestic market, proven agricultural potential, energy and mineral resources and a strategic geographic location which makes it a transit hub and a gate to Europe.
The main investors in Ukraine are Cyprus, Germany, The Netherlands, UK, Austria, the United States and Russia. Apart from the energy sector, direct foreign investment is concentrated mainly in the banking and food processing sectors. You can refer to the Invest in Ukraine website for more information.